Monday, September 12, 2016

"The More Cash People Have, the Happier They Are"

Happiness may not be about how much overall wealth you have, but how much cash you have on hand

Conventional wisdom says you should be investing as much of your
excess money as you possibly can. That may be the best path to greater
wealth. But it may not be the best path to happiness.

In a previous article we looked at a broad range of research about money and happiness.
Some of the main conclusions: Experiences tend to provide more lasting
happiness than material goods; giving money away makes people happier
than spending it on themselves; and wealthier people do tend to be
happier, but only up to a certain point.

The Wall Street Journal spoke recently with Joe Gladstone,
research associate at the University of Cambridge in the U.K. and
co-author of both studies. Here are edited excerpts from that interview.
The right balance

WSJ:Why did you decide to look at the link between bank balances and happiness?MR. GLADSTONE: I’ve been working with banks to
answer some interesting questions about how and why people make certain
financial decisions. A U.K. bank allowed us to survey thousands of its
customers about their happiness and then match those responses to
transaction data from their accounts.

We wanted to look at the
fundamental question: To what extent can money lead to happiness? And
does money tied up in a nonliquid form provide the same happiness as
money that is available to spend?

WSJ:And what did you find?MR. GLADSTONE:
We find a very interesting effect: that the amount of money you have in
your bank account right now is a better predictor of happiness than
your aggregate wealth. Having more money in their bank account makes
people feel more financially secure, which leads to an increase in
happiness.

That makes sense for the poorest 50% in the study, but it’s
surprising that it’s still the case for the richest 50%. Even for a very
wealthy person who has lots of savings and investments, having more
money in their checking account seems to increase their happiness.

It
is just a correlational study, so we don’t study the reasons for this.
But we can hypothesize that when money is tied up in a pension or
investments, it feels more abstract and inaccessible. Going to the ATM
and seeing a large balance available feels more important to people....MORE